The application to apply for loan forgiveness has been issued, and to further assist our clients and community members, we have compiled a list of common questions we have been receiving regarding the PPP loan. Please note, additional guidance is needed on several issues and the following information is not intended to be relied upon for official guidance. If you have specific questions regarding the PPP loan, or another financial related question, we invite you to contact our team at CPS Investment Advisors at: info@CPSInvest.com
- Question: Can the PPP funds be used to pay bonuses or increase salaries?
Answer: Perhaps yes, but further guidance is needed.
Covered payroll cost are currently listed as salary, wages, commissions, or tips (Capped at $100,000 on an annualized basis for each employee) Current guidance does not restrict an increase in salaries or bonuses, but keep in mind that each employee is still restricted to the $100,000 analyzation cap. (Capped at $15,384 per individual)
- Question: When does the 8-week (56 day) covered period start?
Answer: The date the lender makes the first disbursement of the PPP loan to the borrower.
The SBA answered this question in Question #20 of the PPP FAQ’s.
IMPORTANT: See question #9 (What is the “Alternative Payroll Covered Period”?) for an election to possibly adjust the start date.
- Question: Are the expenses used for forgiveness cash or accrual?
Answer: It’s a bit of a hybrid.
The loan forgiveness application specifies the following:
Eligible Payroll Cost: “Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.”
Eligible nonpayroll cost: “An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.”
- Question: If my rent increase, or if I’m renewing my lease agreement soon, will the new lease payment count toward loan forgiveness?
Answer: Not under current guidance. A leasing agreement must be in force before February 15, 2020.
CARES ACT SEC. 1106 (4) states,” the term ‘‘covered rent obligation’’ means rent obligated under a leasing agreement in force before February 15, 2020”
- Question: Can I contribute to my profit sharing plan (PSP) with PPP funds?
Answer: Further guidance is needed.
Currently, employer contributions to defined-benefit or defined-contribution plans are considered covered payroll cost. However, because PSP contributions are more discretionary, we caution the use of the funds into this type of plan until more guidance is provided.
- Question: What utilities can I use the PPP funds for?
Answer: Electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020. See the CARES ACT SEC. 1106 (5).
- Question: Will I get a tax deduction for the expenses paid with the PPP loan?
Answer: Not if the amounts used are forgiven.
The IRS provides more guidance in IRS Notice 2020-32 stating, “Specifically, this notice clarifies that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)”
- Question: I have the PPP loan & EIDL loan. Can I keep and use them both?
Answer: In general yes, but the funds cannot be use for the same purpose.
Each loan has different restrictions regarding the use of the funds. Make sure you are using the funds in accordance with approved qualifying/covered cost.
- Question: What is the “Alternative Payroll Covered Period”?
Answer: You can elect to start the “8-week” covered period beginning the first pay period following their PPP Loan disbarment date.
The following is from the Loan Forgiveness Application:
“For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).”
- Question: A safe harbor exists for loans less than 2-million dollars. Am I still subject to review?
Answer: Yes, you are subject to review regarding loan forgiveness.
The $2 million safe harbor regards the “good faith” certification made by a borrower when they initially applied for the PPP loan.
The SBA addressed this on Question #46 of the FAQ’s on the SBA’s website:.
- Bonus Question: How long should I retain my records for loan forgiveness?
Answer: Six years after the loan is forgiven.
The following is from the Loan Forgiveness Application:
“The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of the Inspector General, to access such files upon request.
If you have any additional questions, please contact our team. Our CPS Team is committed to helping both our clients and community get through these uncertain times. If you, or someone you know, needs assistance, please be sure to reach out. Our advisors are working around the clock to answer all your money questions: info@CPSInvest.com
Sterling J Searcy Jr | CPA
Senior Tax Advisor